Incremental Building and Housing Microfinance Part I: Building on Informal Housing Finance

It is widely acknowledged that the poor all over the world build incrementally. In the absence of any realistic formal housing options, the majority of low income households  around the globe build their homes progressively. Whether starting with a small unit and extending or building a larger unit slowly over time, incremental building is in its essence a housing finance strategy used by low income households to manage their housing process. Houses are constructed as funds become available and the structure itself becomes a savings mechanism.

In many parts of Sub-Saharan Africa, the incremental building process begins by saving blocks or bricks (after having acquired a place to build). In areas where cement blocks are common, people often purchase or produce blocks over time and store them on the building site. Where burnt bricks are used, kilns are often built and fired on-site where possible or the bricks are transported to the site to await future construction. The time between the acquisition of blocks or bricks and construction can often be extended, but this in-kind savings mechanism protects cash from household emergencies and consumption by converting it into building materials.

Cement blocks, although seemingly an expensive option, have the advantage of being able to convert relatively small amounts of cash into materials, by purchasing a bag or two of cement, acquiring sand and paying someone to make the blocks. The process is then repeated as more funds are available. Where burnt bricks are used, they can be a little more cash intensive whether they are purchased or brick makers are hired to produce them on site. When purchasing and transporting, it is usually done by the truckload to take advantage of economies of scale. When made on site, it is an intensive activity to mould, dry, stack and fire the bricks before they are damaged by rains. Burnt bricks are less commonly used as in-kind savings on a small scale as compared with cement blocks. Sun dried bricks are also a common and inexpensive building material, but they are rarely used as savings in-kind for an extended period without being converted into a structure and roofed  to protect them from the rain. (Stabilized soil blocks also exist as an option that is highly popular with housing practitioners, but has yet to become commonplace in the informal incremental housing processes for most low income households.)

Once sufficient blocks or bricks are on site, the incremental building process often continues to act as a savings mechanism in the form of the structure. Foundations can be laid and left on site for an indefinite amount of time. Walls are also built and left unroofed as resources are gathered for the next step. In areas where the soil does not permit burnt or sun dried bricks, low income households often build with cement blocks. Although this is often viewed as an unfavourable practice due to the cost per block, it actually works very effectively as a savings mechanism in the form of both the materials and an unroofed structure that is resistant to weather.

My first housing assignment in Africa was in the Democratic Republic of Congo (at the time it was called Zaire). When I arrived in Kinshasa, I noticed a prevalence of unroofed houses in the outlying sections of the city. This is a common sight in urban, peri-urban and even some rural areas around Africa and it represents one of the major challenges for households with low incomes: Roofing.

The roof is the most expensive single component of a house and it also poses a  challenge using in-kind savings methods. Unlike blocks, roofing materials cannot be saved progressively on the construction site because of the near certainty of theft. For households in small living quarters, the length of typical roofing materials makes them difficult to save and store in the security of the home. When they can be saved, items such as the ubiquitous corrugated metal roofing sheet have a high resale value and can easily be converted back into cash. This makes roofing materials less safe than blocks in times of family crisis, as they can be liquidated on short notice. Roofing is, therefore, a major use for housing microfinance products, because it represents a significant finance bottleneck in the housing process for many families.

Building a complete house and then moving in to occupy it is rarely an option for households with low incomes. The incremental building process takes place using two primary. The dweller can build a small, but essentially complete, unit and extend it later. Alternatively, many households begin building a large house over time, occupy it as soon as they deem it habitable, and then continue working on it while they occupy it. Many families occupy their houses as soon as the roof is in place.

Plans to extend can  be seen in "teeth" with which a planned extension will be joined to the initial structure. Sometimes the structure is built on part of a larger foundation, while at other times the foundation is extended as well. The "extension method" appears to be common with small families, with extensions taking place as the family grows.

In what I might call the "finishing method" floors, plaster, ceilings, electricity and other house components are  added gradually as the family resides in the house. It is not uncommon for dwellers to occupy their houses before even fixing doors and windows. In such cases, temporary coverings are used or window openings are blocked closed, with the doors and windows being added over time as additional funds become available.

HMF Hypothesis Three: Housing Microfinance will be most effective where there is a high prevalence of incremental building taking place.

Housing microfinance fits perfectly with incremental building. It fills a real finance gap and adds value to the housing process of low income households. Small home improvement or home construction loans can easily be applied various incremental building activities, such as roofing, finishing units, extending and other tasks. For housing microfinance to be effective, it must be able to achieve a level of scale that allows it to be implemented sustainably. This can be done where there is a vibrant informal housing sector and people are already building incrementally. This seems almost self-evident, but in practice it is not always the case. I have seen and personally been involved in housing microfinance initiatives that did not follow the lead of local housing activity and could not achieve scale and sustainability as a result.

When conducting market research, indicators of an active informal housing sector that may be one indicator of an area ripe for housing microfinance in Sub-Saharan Africa would include:

• Structures built to roofing level and left unfinished (or built to roofing level with durable materials and roofed with non-durable materials)
• "Teeth" extending from walls indicating a planned extension
• Structures that are built on only part of a larger foundation.
• Occupied houses with blocked-up windows, unfinished floors, etc.
• Visible savings in-kind in the form of materials (blocks, bricks, sand, stones, etc.) on construction sites.
• Block and brick producers (small scale producers)
• Hardware and building supplies shops
• Construction activity visibly taking place

Where the above are visible, there is probably a market for housing finance that will result in home improvements. Housing microfinance works hand in hand with incrementalism and small businesses and services that support construction. When viewed from the provider paradigm (see previous post on housing paradigms), incremental building and a fragmented, informal housing sector may be seen as the problem. When viewed from the supporter paradigm of housing, supporting incremental building efforts with housing finance can be seen as an effective means of helping low income households move forward in their housing process.